Question

On January 1, 2020, Harlow Company paid $137,000 to purchase a piece of
equipment. Before the equipment could be used, Harlow had to spend $6,000
to put the equipment in working order.

The equipment was assigned a useful life of 12 years and a residual value
of $11,000. The straight-line method will be used to record depreciation
on the equipment.

On January 1, 2026, Harlow Company spent $27,000 to overhaul the equipment.
This capital expenditure caused Harlow Company to change the life of the
equipment from 12 to 20 years with a residual value of $6,000 at the end
of the 20 years.

Calculate the book value of the equipment at December 31, 2027.

Answer 1

initial annual depreciation => (137,000+6000 - 11,000 salvage value) / 12 years

=>$11,000.

book value as on january 1 2026...(i.e after 6 years of use) = $143,000 - ($11,000* 6 years)

=>$77,000.

now,

new value = $77,000+ 27,000 =>$104,000.

new depreciation = ($104,000 - 6,000) / 14 years remaining.............(total life 20 years- 6 years expired =>14 years)

=>$98,000 /14 =>$7000 per annum.

book value on december 31 2027:

book value of january 1 2026	104,000
less: depreciation @7000 per year for 2 years i.e 2026 and 2027	(14,000)
book value of december 31 2027	90,000